PPF vs NPS: National Pension System or NPS is a voluntary pension scheme administered by PFRDA (Pension Fund Regulatory and Development Authority) created through a Parliamentary Act. However, while investing in NPS it has been found that people are confused between Public Provident Fund (PPF) and NPS as both are meant for long term or retirement fund accumulation.
Speaking on PPF vs NPS; Manikaran Singhal, Founder, Goodmoneying.com said, “Both PPF and NPS are voluntary investment instruments. However, when it comes to choosing either PPF or NPS, people get confused as to which one gives them higher returns and income tax. Generally, people invest in NPS when their PPF limit ₹1.5 lakh under section 80C has expired.”
SEBI registered tax and investment expert said NPS has eight fund managers where NPS account holders can choose to have equity exposure of up to 60 per cent of the investment. And at the time of retirement, one can withdraw 60 per cent of the maturity amount, which is tax-free. The remaining 40 per cent remains in the NPS account for pension funding and the investor has to buy an annuity from it.
Manikaran also said that there are two options for NPS investment: active mode and auto mode. In active mode, one can evaluate his returns annually and switch from equity to debt and debt to equity options. In auto mode, there will be 8 fund managers who will handle one’s investments and switch from debt to equity and vice versa options on their wit and patience. He said that income tax exemption can be given on NPS investment in NPS. ₹50,000 under section 80CCD.
Comparing PPF with NPS, Kartik Jhaveri, Director, Investments, Transcend Capital, said, “A recruiter, especially a government of India or a state government, gives their employees a choice between PPF and NPS. Some private companies also do this. Option for its employees. However, NPS account can also be opened by those who are self employed or earning other than monthly salary. Since NPS has annuity option, hence NPS account instead of PPF. It is always better to opt for NPS. The advantage of opting for NPS is to maximize investment whereas in PPF it is completely dependent on the interest rate.”
Jhaveri further said that due to equity exposure, if one chooses to have debt and equity exposure in the ratio of 50:50, the long-run debt option will give around 8 per cent return while equity exposure will give at least 12 per cent. Return. This means the net NPS return will be 10 (6 + 4 = 10) per cent, which is 2.9 per cent higher than the PPF interest rate of 7.10 per cent.
PPF vs NPS: Which is Better
Therefore, if an investor chooses NPS over PPF while having 50:50 exposure to equities and equities, the investor can expect to get around 2.9 per cent higher return on a paise (10 – 7.10 = 2.90).
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